The Commissioner of Income-tax Central Circle, Mangalore / The Deputy Commissioner of Income-tax Central Circle, Mangalore v. Mandavi Builders
[Citation -2020-LL-0922-25]

Citation 2020-LL-0922-25
Appellant Name The Commissioner of Income-tax Central Circle, Mangalore / The Deputy Commissioner of Income-tax Central Circle, Mangalore
Respondent Name Mandavi Builders
Court HIGH COURT OF KARNATAKA
Relevant Act Income-tax
Date of Order 22/09/2020
Assessment Year 2010-11
Judgment View Judgment
Keyword Tags proportionate disallowance • benefit of deduction • search proceedings • unaccounted money • additional income • residential units • housing project • on money
Bot Summary: The assessee filed the return of income declaring gross income of Rs.12,26,80,417/- for Assessment Year 2010-11 and Rs.6,49,29,278/- for Assessment Year 2011-12 and claimed deduction under 4 Section 80IB(10) of the Act, on its entire income. During the course of assessment proceeding under Section 153(c) read with Section 143(3), on verification of the deduction claimed under Section 80IB(10) the Assessing Officer by an order dated 28.12.2010 inter alia held that the housing project consist of 195 flats and some owners have joined two flats, reducing the number of flats to 186. The Commissioner of Income Tax by an order dated 20.09.2013 inter alia held that the assessee is entitled to benefit of deduction under Section 80IB(10) of the Act only to the 5 proportionate profit earned from the residential unit which comply with provisions of Section 80IB(10) of the Act in both assessment years. The Commissioner of Income Tax disallowed the claim of the assessee for Assessment Year 2010-11 in respect of receipt of on money amounting to Rs.42,03,280/- for sale of flats by placing reliance on Section 80A(5) of the Act and held that the profits were not routed through books of account but constituted undisclosed income. The Commissioner of Income Tax held that no deduction under Section 80IB(10) of the Act was allowable on the income / profit which neither form the part of the assessee s account nor were additional cash amounts earned and credited to cash book or form cash balance of the business. Upheld the order of the Commissioner of Income Tax with regard to proportionate disallowance to be made in respect of transactions which were made subsequent to introduction of clauses and of Section 80IB(10) of the Act as well as the residential units where there was a violation of condition of Section 80IB(10) of the Act both the Assessment Years. The Tribunal itself has found that all the transactions except in respect of two flats have been entered into by the assessee in the year 2007-08 and therefore, the provisions cannot be applied to transactions entered into by the assessee prior to introduction of clauses and to Section 80IB(10) of the Act.


1 IN HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS 22ND DAY OF SEPTEMBER 2020 PRESENT HON BLE MR. JUSTICE ALOK ARADHE AND HON BLE MR. JUSTICE H.T.NARENDRA PRASAD I.T.A NO.307/2015 BETWEEN: 1. COMMISSIONER OF INCOME-TAX CENTRAL CIRCLE, C.R. BUILDING QUEENS ROAD, MANGALORE-575001. 2. DEPUTY COMMISSIONER OF INCOME-TAX CENTRAL CIRCLE, C.R. BUILDING ATTAVARA, MANGALORE-575001. ... APPELLANTS (BY SRI. K.V. ARAVIND, ADV.,) AND: M/S. MANDAVI BUILDERS MANDAVI PALACE END POINT ROAD, MANIPAL UDUPI-576104 PAN: AAOFM 0540P. ... RESPONDENT (BY SRI. A. SHANKAR, SR. COUNSEL A/W SRI. M. LAVA, ADV.) --- THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 20.02.2015 PASSED IN ITA NO.1786/BANG/2013 FOR ASSESSMENT YEAR 2010-11, PRAYING THAT THIS HON BLE COURT MAY BE PLEASED TO: 2 (I) FORMULATE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE. (I) ALLOW APPEAL AND SET ASIDE ORDERS PASSED BY ITAT, BANGALORE IN ITA NO.1786/BANG/2013 DATED 20-02-2015 AND CONFIRM ORDER OF APPELLATE COMMISSIONER CONFIRMING ORDER PASSED BY DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, MANGALORE. THIS ITA COMING ON FOR FURTHER HEARING, THIS DAY, ALOK ARADHE J., DELIVERED FOLLOWING: JUDGMENT This appeal under Section 260A of Income Tax Act, 1961 (hereinafter referred to as Act for short) has been preferred by revenue. subject matter of appeal pertains to Assessment year 2010-11. appeal was admitted by bench of this Court vide order dated 01.03.2017 on following substantial questions of law: (i) Whether, on facts and in circumstances of case, Tribunal was right in holding that, unaccounted money, found during search proceedings and explained as on money received, are eligible for deduction under Section 80IB(10) of Act? 3 (ii) Whether, on facts and in circumstances of case, that Tribunal was right in holding that, transactions entered into, with buyers of flats, are eligible for deduction, even though there is violation of sub-Sections(e) and (f) of Section 80IB(10), on ground that these transactions were entered into before amendments to sub-Section (3) and (f) of Section 80IB(10)? 2. Facts leading to filing of this appeal briefly stated are that assessee is involved in business of building and developing housing projects. search under Section 152 of Act was conducted in business premises of assessee on 04.02.2011. During course of search, various documents were seized. assessee filed return of income declaring gross income of Rs.12,26,80,417/- for Assessment Year 2010-11 and Rs.6,49,29,278/- for Assessment Year 2011-12 and claimed deduction under 4 Section 80IB(10) of Act, on its entire income. During course of assessment proceeding under Section 153(c) read with Section 143(3), on verification of deduction claimed under Section 80IB(10) Assessing Officer by order dated 28.12.2010 inter alia held that housing project consist of 195 flats and some owners have joined two flats, reducing number of flats to 186. It was also held that some residential units were having floor area of more than 1,500 square feet and some of flats were sold to single or related persons or single person. transactions according to Assessing Officer constituted violation of Section 80IB(10) of Act. He therefore disallowed claim in respect of both assessment years. assessee thereupon filed appeal before Commissioner of Income Tax (Appeals). Commissioner of Income Tax (Appeals) by order dated 20.09.2013 inter alia held that assessee is entitled to benefit of deduction under Section 80IB(10) of Act only to 5 proportionate profit earned from residential unit which comply with provisions of Section 80IB(10) of Act in both assessment years. Commissioner of Income Tax (Appeals), however, disallowed claim of assessee for Assessment Year 2010-11 in respect of receipt of on money amounting to Rs.42,03,280/- for sale of flats by placing reliance on Section 80A(5) of Act and held that profits were not routed through books of account but constituted undisclosed income. Commissioner of Income Tax (Appeals) held that no deduction under Section 80IB(10) of Act was allowable on income / profit which neither form part of assessee s account nor were additional cash amounts earned and credited to cash book or form cash balance of business. Being aggrieved, assessee as well as revenue filed appeals before Income Tax Appellate Tribunal (hereinafter referred to as 'the Tribunal' for short). Tribunal by order dated 22.02.2015 inter alia held that transactions entered into 6 by assessee were prior to introduction of clauses (e) and (f) to Section 80IB(10) of Act and aforesaid clauses are prospective in nature and can only be applied in respect of transactions entered after 01.04.2010. Tribunal therefore, upheld order of Commissioner of Income Tax (Appeals) with regard to proportionate disallowance to be made in respect of transactions which were made subsequent to introduction of clauses (e) and (f) of Section 80IB(10) of Act as well as residential units where there was violation of condition (c) of Section 80IB(10) of Act both Assessment Years. Tribunal further held that assessee is eligible for deduction under Section 80IB(10) of Act on additional income also. In aforesaid factual background, this appeal has been filed. 3. Learned counsel for revenue submitted that Tribunal erred in holding that unaccounted money is eligible for deduction under Section 80IB(10) 7 of Act. It is further submitted that Tribunal grossly erred in extending benefit of proportionate allowance on flats which comply with conditions laid down under Section 80IB(10)(e) and (f) of Act. It is further submitted that clauses (e) and (f) can be applied in respect of transactions, which are entered into after 01.04.2010. On other hand, Learned Senior counsel of assessee has submitted that entire flats of assessee were sold prior to 25.05.2009 and Assessing Officer himself has treated income found during search proceedings as business from income. It is also submitted that assessee has rightly bee held entitled for deduction under Section 80IB(10) of Act on additional income as assessee had made claim in return of income. 4. We have considered submissions made by learned counsel for parties and have perused record. Clauses (e) and (f) to Section 80IB(10) of Act have been inserted by Finance Act (No.2), 2009 with 8 effect from 01.04.2010, which provides that not more than one residential unit in housing project is allotted to any person not being individual and in case, residential unit in housing project is allotted to person being individual, no other residential unit in such housing complex shall be allotted to individual, spouse or minor children of such individual, Hindu Undivided Family (HUF) in such individual is Karta or any person representing such individual, spouse or minor children of such individual of HUF in which such individual is Karta. It is also pertinent to note that in clause (e) of Section 80IB(10) of Act, Legislature has used expression allotted . In other words, in case, residential unit is allotted prior to 01.04.2010, conveyance in such residential unit can be registered subsequently also and in such case also assessee will be entitled to benefit of deduction under Section 80IB(10) of Act. Clauses (e) and (f) of Section 80IB(10) of Act are prospective in nature 9 and apply in respect of transactions entered on or after 01.04.2010, which is evident from Circular No.5/2010 dated 03.06.2010. From perusal of order passed by Assessing Officer, it is evident that unaccounted money during search proceedings has been treated to be business income by Assessing Officer. 5. Tribunal itself has found that all transactions except in respect of two flats have been entered into by assessee in year 2007-08 and therefore, provisions cannot be applied to transactions entered into by assessee prior to introduction of clauses (e) and (f) to Section 80IB(10) of Act. In view of preceding analysis, substantial questions of law framed by this court are answered against revenue and in favour of assessee. 10 In result, appeal fails and is hereby dismissed. Sd/- JUDGE Sd/- JUDGE ss Commissioner of Income-tax Central Circle, Mangalore / Deputy Commissioner of Income-tax Central Circle, Mangalore v. Mandavi Builder
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